THE U.S. DEFENSE INDUSTRY AND ARMS SALES
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INTRODUCTION
The three largest defense companies
in the world are all United States companies.
With a combined total revenue in 2001 of $100
billion and employing 400,000 people, Lockheed Martin, Northrop Grumman and
Boeing are three powerhouses of American business.[i] Their combined revenues account for 1% of
the United States' $10 trillion GDP.[ii] Each company is on each of the Fortune
lists: America’s Most Admired Companies, Global Most Admired Companies, Fortune
500 and Global 500.[iii] Lockheed Martin, Northrop Grumman and Boeing
are also the three top arms-producing companies in the world. To scope this paper is to examine to what
extent these three companies depend on their arms sales in general and their
arms sales to foreign governments in particular, and to evaluate how these
companies would fare if the wars they are faced with in the future are fought with
economics instead of aircraft and missiles.
In the first section of this paper, company-specific financial analysis
is examined and in the second section of this paper, the US arms industry as a
whole is considered. After considering
the global parameters of the arms industry, the future prospects of Lockheed
Martin, Northrop Grumman and Boeing are qualitatively considered.
SECTION I:
COMPANY-SPECIFIC ANALYSIS
COMPANY PROFILES
In order to properly understand how these three top defense companies operate, it is important to have an accurate understanding multiple lines of business each runs, beyond merely the high profile aircraft they manufacture. There is a tendency to think these combat aircraft is all they produce when, in fact, this is not the primary business sector for any of the companies.
Lockheed Martin
Corporation
Lockheed Martin F-16 Fighting Falcons
Lockheed Martin
Corporation, based in Bethesda, Maryland, is the world’s largest defense
contractor. Among Lockheed’s many claims to fame, it is also the largest
military aircraft manufacturer in the world and the prime contractor on the
largest defense contract ever, the $250 billion Joint Strike Fighter (JSF)
program.
|
Lockheed Martin F-16 Fighting Falcons |
Its four principal business sectors are Systems Integration (including data processing subsystems and electronic warfare), Aeronautics (combat and transport aircraft), Space Systems (communication satellites and launch vehicles), and Technology Services (management and logistic services).[iv] Familiar Lockheed products include the F-16 Fighting Falcon, and the C-130 Hercules, however a greater percentage of Lockheed’s sales revenue comes from the Systems Integration and Space Systems sectors than from Aeronautics ($9 billion and $6.8 billion vs. $5.4 billion, respectively[v]). The biggest moneymaking programs in 2001 were Naval Electronics & Surveillance and Missiles & Fire Control, both a subset of Systems Integration.[vi]
In 2001, total
sales were $24 billion and for the nine months ending 9/30/02, sales had risen
13% to $18.8 billion.[vii] Over the past five years, the average annual
gross profit has been $1.9 billion.[viii]
Lockheed’s
primary customer is the United States government, and specifically, the
Department of Defense. The sales
percentages by customer are:[ix]
U.S. Department of Defense -
57%
NASA & Other Government
Agencies - 20%
International - 17%
Domestic Commercial - 6%
Lockheed
Martin Corporation employs 125,000 people in the United States and abroad.
Northrop Grumman Corporation
Northrop Grumman B-2 Spirit Stealth Bomber
Northrop
Grumman Corporation, based in Los Angeles, California, will become the world’s second largest military contractor, after a
recent $8 billion purchase of TRW propels the company up from the number three
slot. Although Northrop Grumman is the
world’s largest shipbuilder and the sole builder of the US Navy's aircraft
carriers, it is more famous for being the manufacturer of the most expensive
plane ever built, the $1.2 billion apiece B-2 Spirit Stealth Bomber.[x]
Northrop's six principal business sections are Electronic Systems (combat avionics and surveillance), Information Technology (computer systems), Integrated Systems (air combat, electronic warfare, and battlefield management) , Ship Systems (military and commercial), Newport News (nuclear-powered subs and aircraft carriers), and Component Technologies (electronic and optical components).[xi] Familiar Northrop products include the B-2 Spirit Stealth Bomber and the F-14 Tomcat. However, like Lockheed, the largest percentage of Northrop’s revenue comes from Electronic Systems and Information Technology sectors, and not Integrated Systems sector (which includes the combat aircraft business unit). Electronic Systems Sector comprises 34% of revenues and Information Technology comprises 27% of revenues while Integrated Systems comprises 22% of the company’s revenues.[xii] The biggest programs in 2001 in terms of sales were Government Information Technology, Air Combat Systems, and Aerospace Electronic Systems.[xiii]
Northrop recently engaged in a successful hostile takeover of TRW, Inc., a $16 billion company whose products span the automotive, aerospace, and information technology markets. The Department of Justice and Northrop Grumman have agreed to a timeline for the closing of Northrop’s acquisition of TRW, Inc. According to the timeline, agreed to in October, the acquisition will close in the fourth quarter of 2002.[xiv] The acquisition was officially cleared by the European Commission in October.[xv]
In 2001, Northrop’s total sales were
$14 billion and for the nine months ending 9/30/02,
sales had risen 40% to $12.4 billion. Over the past five years, the average annual gross profit has been
2.1 billion.[xvi] The TRW acquisition will approximately
double each of the figures.[xvii]
Northrop’s primary customer is the United States government. The sales percentages breakdown is:[xviii]
US Government - 78%
Other Customers - 22%
Northrop Grumman Corporation employs 100,000 people in the United States and abroad.
The Boeing Company
Boeing C-16 Globemaster
The Boeing Company, headquartered in Chicago, Illinois,
will now be the world’s third largest military contractor behind Lockheed and
Northrop. Boeing, however, can still
boast about being the largest manufacturer of satellites and commercial
jetliners in the world, America’s largest exporter in terms of sales, and the 78th
largest economy in the world.[xix]
Boeing’s five major business units are Commercial Airplanes, Integrated Defense Systems, Boeing Capital Corporation (financial services), Connexion by Boeing (in-flight entertainment) and Air Traffic Management (air traffic control systems). However, 99% of Boeing's revenue comes from the first two units: Commercial Airplanes (60%) and Integrated Defense Systems (39%).[xx] The latter includes Military Aircraft & Missile Systems (21% of total) and Space & Communications (launch services, missile defense, space exploration—18% of total).[xxi] Familiar Boeing products include the C-17 Globemaster and the 747 commercial transport.
In 2001, total sales were $58 billion and for the nine months ending 9/30/02, sales had fallen 5% to $40.4 billion.[xxii] Over the past five years, the average annual gross profit has been $6.9 billion.[xxiii]
Approximately
half of Boeing sales are foreign and half domestic.[xxiv] Boeing has very strong commercial relations
with China, which accounts for 10% of Boeing’s business.[xxv]
The Boeing Company employs 171,000
people in the United States and abroad.
ARMS SALES
DEPENDENCY
In addition to being the largest military contractors in the world, Lockheed Martin, Northrop Grumman and Boeing are also the largest arms-producing companies in the world. The dependency of the companies on their arms sales, combined domestic and foreign, are as follows:
Sales figures are in millions of US dollars.[xxvi]
|
COMPANY |
SECTOR |
ARMS SALES 2000 |
ARMS SALES 1999 |
TOTAL SALES 2000 |
% ARMS SALES/TOTAL |
|
Lockheed |
Ac El Mi |
18,610 |
19,790 |
25,329 |
73 |
|
Boeing |
Ac El Mi |
16,900 |
16,000 |
51,521 |
33 |
|
Northrop[xxvii] |
Ac El Mi SA/A Sh Oth |
15,590 |
15,800 |
32,509 |
48 |
Key to abbreviations: Ac = aircraft, El = electronics, Mi = missiles, SA/A = small arms/ammunition, Sh = ships, and Oth = other
Lockheed is the most dependent on arms sales, which comprised 73% of its total sales in 2000. Notice that “arms” is a very broad term including aircraft and electronics and not merely missiles and ammunition. Northrop is the next most dependent on arms sales at 48%. The current makeup of Northrop Grumman is much less dependent now than before Northrop acquired Litton Industries, Newport News and TRW, when Northrop’s percentage arms sales of total sales was 87%. Boeing is the least dependent on arms sales, largely because commercial aircraft sales comprise the majority of their revenues.
DEFENSE
FOREIGN MILITARY SALES DEPENDENCIES
The previous arms
sales dependencies section included domestic arms sales. The dependencies of the top three US defense
contractors on defense foreign military sales are considered in this section
for the fiscal year 1999, a fairly representative year in terms of post Cold
War arms sales.[xxviii] Total purchases in 1999 totaled $6.2 billion. The dependencies on defense
foreign military sales were as follows:
Dependencies
on Foreign Military Sales, Value
Amounts in
millions of US dollars, FY1999
|
RANKING |
COMPANY |
AMOUNT |
MARKET SHARE |
|
1 |
Boeing |
1,417 |
22.8% |
|
2 |
Lockheed Martin |
1,079 |
17.4% |
|
3 |
Raytheon |
814 |
13.1% |
|
4 |
United Technologies |
265 |
4.3% |
|
5 |
Northrop Grumman[xxix] |
239 |
3.8% |
Rankings are based on prime contracts of $25,000 or more for
military R&D, services and products sold to non-U.S. governments.[xxx]
Boeing is the most heavily invested in defense
foreign military sales with $1.4 billion in sales. Although half of Boeing's total sales are to foreign markets, a
high percentage of those sales are for
commercial aircraft and other non-defense products. The $1.4 billion in foreign military sales only accounts for
2.44% of Boeing's total sales.[xxxi] Lockheed is the a close second with $1.1
billion in foreign military sales.
Northrop Grumman is actually ranked 5th behind missile giant Raytheon
and jet engine and helicopter manufacturer United Technologies. As a percentage of the total sales, the
dependencies of the companies on foreign military sales are as follows:
Dependencies on Foreign
Military Sales, Percentage
Amounts in millions of US dollars, FY1999[xxxii]
|
COMPANY |
FMS 1999 |
TOTAL SALES 1999 |
FMS/TOTAL SALES |
|
Lockheed Martin |
1,079 |
24,999 |
4.32% |
|
Boeing |
1,417 |
57,993 |
2.44% |
|
Northrop Grumman |
239 |
24,585 |
0.97% |
As
the above table illustrates, the percentage of Foreign Military Sales out of
the Total Sales for each of the companies is rather small. Arms sales account for a fraction of each of
the companies revenues (73%, 48%, and 33% for Lockheed, Northrop and Boeing,
respectively), and Foreign Military Sales account for a much smaller percentage
of that total (under 5% for all companies).
However, although the percentage is small, when the actual dollar amount
is calculated, the combined annual Foreign Military Sales of $2.7 billion is
still worth consideration.
SECTION II: US ARMS INDUSTRY
WORLDWIDE ARMS SALES
We have seen that the United States is home to the largest military contractors in the world and that these companies dominate domestic defense sales, worldwide defense sales and US arms sales. So far we have only considered the sale of US arms to the world. This subsection examines to what extent The United States controls the market of worldwide arms sales. In essence, just as the discussion of the three US defense contractors was justified by establishing their complete dominance of the worldwide defense industry, this section in part justifies the consideration of the US arms sale market by establishing the US’ dominance of the market. Naturally, we are also interested in the role of the US in the worldwide arms market towards the end of analyzing the future of Lockheed, Northrop and Boeing.
The United States is the clear leader in worldwide arms sales, due mostly to the larger size and capabilities of the US companies. Of the 100 largest arms-producing companies, 43 are US companies, including the 8 of the 10 largest.
The aggregate arms sales (including
domestic procurement and exports) of the100 largest arms-producing companies in
the OECD (Organization for Economic Cooperation and Development) and developing
countries totaled approximately $157 billion in 2000. US arms sales accounted
for 60% of that total. West European OECD
accounted for 31%, other OECD (Japan, Canada, Australia, Turkey) accounted for
6%, and “developing countries” (Israel, India, Singapore and S. Africa)
accounted for 4%.[xxxiii] A summary table follows:
SHARE OF ARMS SALES, FY2000[xxxiv]
Region Market Share
US 60%
West
Europe OECD 31%
Other
OECD 6%
Developing
Countries 4%
The
United States has a larger share of the worldwide arms market than the rest of
the world combined and double the market share of all of the Western Europe
OECD combined. Trends show that the US
market share increased rather dramatically through the late 1980s and early
1990s and have been slowing increasing up to 60% over the past few years. One can attribute the trend, in part, to the
increasing power of the US military contractors. For the same reasons, one
could expect continued increasing dominance of the US in the worldwide arms
market.
US Market Share of Worldwide Arms Sales[xxxv]
US
ARMS SALES TO FOREIGN COUNTRIES
In
this subsection, background information on the conditions under which US arms
are sold to foreign countries is examined.
Additionally, the total value of the Foreign Military Sales in
comparison to all US military sales is considered in the Post Cold War era.
In addition to Direct
Commercial Sales (DCS), the United States government provides military
equipment, services and training to foreign countries through a variety of
programs such as the Foreign Military Sales (FMS) program and the Foreign
Military Financing Program. The
International Military Education and Training (IMET) program also provides
equipment, training and services through a grant basis. Money granted under the Foreign Military
Financing Program may be used to purchase military items through the FMS
program or, in rare cases, directly from the US company (DCS). Of course, there are a host of restrictions
on all transfers of U.S. military items imposed and regulated by the U.S.
government.[xxxvi]
Altogether, the value of US military sales, production and contracts, both foreign and domestic, in the post-cold war era (1992-present) has averaged $94.1 billion a year. The standard deviation is rather low, as sales are holding relatively steady. Of that $94.1 billion total, 82.8% has been domestic and 17.2% as an export. Foreign Military Sales (FMS) deliveries account for 84.9% of the export value (14.6% of the total value) while commercial exports licensed under the Arms Export Control Act account for 15.1% of the export value (2.6% of the total value) of all military items.[xxxvii] Thus the vast majority of the value of US military sales, production and contracts comes from domestic procurement rather than export.
US FOREIGN MILITARY SALES BY REGION
This
subsection provides a breakdown of the US arms sales recipient by region. In examining these figures, the effect of
unified US arms sales buying freeze by region — for instance, by members of the
Middle East (or more realistically, the Arab League— can be considered.
US ARMS DELIVERIES TO ALL COUNTRIES IN THE FOLLOWING REGIONS FOR 1992-2001[xxxviii]
All amounts are in millions of US dollars
|
REGION |
DCS[xxxix] |
FMS[xl] |
TOTAL |
annual AVG |
% TOTAL[xli] |
|
Middle East/South Asia[xlii] |
861 |
54,292 |
55,153 |
5,515 |
41.8% |
|
East Asia/Pacific[xliii] |
5,937 |
28,956 |
34,894 |
3,489 |
26.4% |
|
Europe |
4,378 |
25,641 |
29,993 |
2,993 |
22.7% |
|
International[xliv] |
7,034 |
578 |
7,612 |
761 |
5.8% |
|
Americas |
1,309 |
2,800 |
4,109 |
411 |
3.1% |
|
Africa |
26 |
154 |
180 |
18 |
1.4% |
The Middle East and South Asia are the largest
recipients of US arms, with 42% of US arms deliveries since 1992 going to that
region. Within the Middle East, the
largest recipients of U.S. military items in the Middle East in the post-Cold
War period are Saudi Arabia, Israel, Egypt, and Kuwait.[xlv]
Together these four countries account for 94.4% of the arms deliveries to the
region.
The breakdown of
US arms deliveries to these top four recipient countries in the Middle East are
as follows:
US ARMS DELIVERIES TO THE MIDDLE EAST FOR 1992-2001[xlvi]
All amounts are in millions of US dollars
|
COUNTRY |
DCS[xlvii] |
FMS[xlviii] |
TOTAL |
annual AVG |
% TOTAL[xlix] |
|
Saudi Arabia |
259 |
30,511 |
60,770 |
3077 |
74.0% |
|
Israel |
85 |
9,456 |
9,542 |
954 |
11.6% |
|
Egypt |
206 |
6.127 |
6,334 |
633 |
7.7% |
|
Kuwait |
30 |
5,410 |
5,440 |
544 |
6.6% |
The largest recipient of US arms in
the 1992-2001 period was Saudi Arabia.
Saudi Arabia received 29% of all US foreign arms deliveries, compared to
the next biggest recipient, all countries in East Asia and the Pacific at 26%.
The grand total of all US foreign
arms deliveries in the period 1992-2001 was 131,941 million ($132 billion),
. Although $132 billion is certainly a
lot of money, the value of US arms deliveries is small in comparison to the
combined export and domestic value.
TOTAL VALUE OF US ARMS PRODUCTION, FOREIGN AND DOMESTIC
VALUE OF OUTPUT OF US ARMS PRODUCTION INDUSTRY
In millions of US dollars at current prices[l]
|
|
Value of US
military sales, production and contracts |
|||||
|
FISCAL YEAR |
DOMESTIC |
EXPORT - FMS |
EXPORT - DCS |
EXPORT TOTAL |
TOTAL |
% EXPORT/TOT |
|
1992 |
84,400 |
10,089 |
2,667 |
12,756 |
97,156 |
13.1% |
|
1993 |
82,000 |
11,282 |
3,808 |
15,090 |
97,090 |
15.5% |
|
1994 |
76,900 |
9,363 |
3,339 |
12,702 |
89,602 |
14.2% |
|
1995 |
74,600 |
11,818 |
3,173 |
14,991 |
89,591 |
16.7% |
|
1996 |
74,300 |
11,389 |
1,563 |
12,952 |
87,252 |
14.8% |
|
1997 |
72,700 |
15,448 |
1,818 |
17,266 |
89,966 |
19.2% |
|
1998 |
77,280 |
12,618 |
2,045 |
14,663 |
91,943 |
15.9% |
|
1999 |
81,190 |
16,802 |
654 |
17,456 |
98,646 |
17.7% |
|
2000 |
82,000[li] |
11,421 |
478 |
11,899 |
93,899 |
12.2% |
|
average |
78,374 |
12,248 |
1,838 |
14,419 |
92,794 |
15.5% |
As
evidenced by the above table, domestic business accounts for the vast majority
of the value of the US arms production industry. The $132 billion total (previous section) of all US foreign arms
deliveries in the period 1992-2001 is less than the value of any two years of
domestic US arms sales, production and contracts. The total value of US arms production, foreign and domestic, in
the period 1992-2001 is approximately $930 billion. Exports account 16% of that total.
US MILITARY SPENDING
It
is very clear from the previous section that the US spends far more on its own
arms production industry than the rest of the world combined. However,
it was also established that the US arms industry dominates the
worldwide arms market, which begs the question, how much does the United States
spend on its military in comparison to the rest of the world?
MILITARY BUDGET[lii]
All figures are in billions of US dollars
|
COUNTRY |
BUDGET (Billions US$) |
YEAR |
|
U.S |
343.2 |
2002 |
NATO
|
|
|
|
United Kingdom |
34.5 |
2000 |
|
France |
27.0 |
2000 |
|
Germany |
23.3 |
2000 |
|
Other NATO |
62.3 |
2000 |
Asia/Pacific Allies
|
|
|
|
Japan |
45.6 |
2000 |
|
South Korea |
12.8 |
2000 |
|
Australia |
7.1 |
2000 |
Total US &
Allies
|
555.8 |
|
Potential Enemies
|
|
|
|
Iran |
7.5 |
2000 |
|
Syria |
1.8 |
2000 |
|
Iraq |
1.4 |
1999 |
|
North Korea |
1.3 |
2000 |
|
Libya |
1.2 |
2000 |
|
Cuba |
0.8 |
1999 |
|
Sudan |
0.4 |
2000 |
Total US Enemies
|
14.4 |
|
|
Other Countries with Significant Militaries |
|
|
|
Russia |
56.0 |
1999 |
|
China |
39.5 |
1999 |
|
India |
15.9 |
2000 |
|
Taiwan |
12.8 |
2000 |
|
Pakistan |
3.3 |
2000 |
Although
military budget is not equivalent to military strength, it is more than clear
that no military power, singular or combined, in the world rivals the power of
the United States’ military. Not only
does the United States have more money, more equipment, more resources, and
more top defense contractors, the United States has the infrastructure to tie
its resources together. All the F-16’s
in the world cannot help if you do not have the intelligence, reconnaissance,
surveillance, communication and leadership to back them up. The Center for Strategic and International
Studies has enumerated some of the qualitative weaknesses in regions such as
the Middle East in the report, “The Conventional Military Balance in the Gulf
in 2000."[liii] Besides the weaknesses identified above,
over-centralization of the effective command structure, lack of strategic
assessment capability, slow tempo of operations, and inability to fight modern
night and all-weather warfare, are among the long list of additional weaknesses
identified in the report.
Since
it is clear that no military could stand up to the US military, it can be asked
why any country would continue to buy US (or any other country’s) arms? If a unified UN peacekeeping force could
both suppress any offensive action by a rogue nation and likewise protect any
nation against invasion or foreign oppression, the need for foreign countries
to continue to buy US weapons comes into question. Of course, one can expect that the US would play a major role in
arming the unified peacekeeping force, but what effect on the US defense
contractors would it have if groups such as the Arab League decided to stop
buying US arms?
ECONOMIC EFFECT OF FMS FREEZE BY REGION
Let us reconsider the chart from the section on US foreign military sales by region:
US ARMS DELIVERIES TO ALL COUNTRIES IN THE FOLLOWING REGIONS FOR 1992-2001[liv]
All amounts are in millions of US dollars
|
REGION |
DCS[lv] |
FMS[lvi] |
TOTAL |
annual AVG |
% TOTAL[lvii] |
|
Middle East/South Asia[lviii] |
861 |
54,292 |
55,153 |
5,515 |
41.8% |
|
East Asia/Pacific[lix] |
5,937 |
28,956 |
34,894 |
3,489 |
26.4% |
|
Europe |
4,378 |
25,641 |
29,993 |
2,993 |
22.7% |
|
International[lx] |
7,034 |
578 |
7,612 |
761 |
5.8% |
|
Americas |
1,309 |
2,800 |
4,109 |
411 |
3.1% |
|
Africa |
26 |
154 |
180 |
18 |
1.4% |
The effect of the Middle East
and South Asia freezing all purchases of US arms would deliver an annual loss
of approximately $5.5 billion, counting both direct commercial sales and
foreign military sales. If every
country in the world stopped buying US arms, including all of the US’ allies,
the annual loss would be roughly $13 billion.
Again, $13 billion is a great deal
of money, but when we compare it to the value derived from domestic business of
approximately $93 billion, the foreign dependency is not very high. Furthermore, if we reconsidered the
individual companies' dependency on foreign military sales we see that the
impact is even less:
Amounts
in millions of US dollars, FY1999
|
COMPANY |
FMS 1999 |
TOTAL SALES 1999 |
FMS/TOTAL SALES |
|
Lockheed Martin |
1,079 |
24,999 |
4.32% |
|
Boeing |
1,417 |
57,993 |
2.44% |
|
Northrop Grumman |
239 |
24,585 |
0.97% |
The
loss felt by a global buying freeze by any individual company is unilaterally
less than 5%. Allies of the United
States account for a significant portion of the foreign arms sales so it is
somewhat reactionary to envision a global buying freeze. Furthermore, there is no clear historical
trend to suggest that such a buying freeze is on the horizon for the
foreseeable future. Recall the chart on
the US market share of the arms market showing an increasing US dominance. Also consider a graph of the value of the
arms exports since the end of the Cold War (presented in tabular form in the
second section of the paper) with a linear trendline:
Even if most of the world adopted the
viability of a global UN peacekeeping force, surely the United States, with its
firm command over the world arms market and with superior technology and
manufacturing capabilities, would have a large role in arming the peacekeeping
force. However, even if one considers
the most dramatic of possibilities—an absolute end to foreign arms sales, the
individual companies would be only slightly affected. The sale of one more B-2 Stealth Bomber would offset the loss for
Northrop Grumman, for instance, five times over.
SECTION III: FUTURE OF US DEFENSE CONTRACTORS
This
last section of the paper considers qualitatively, the prospects of Lockheed
Martin, Northrop Grumman and Boeing.
First, the possibility of mergers is examined and then the financial
future of the companies is summarized.
MERGERS
The defense
industry has undergone a great deal of consolidation in the past few
decades. While in 1980, there were 51
separate US defense companies, by 1997, there were five. By 2001, there were four.[lxi]
Although
consolidation in the defense industry will likely continue, it seems unlikely
that there will be further consolidation among the very largest companies,
namely Lockheed, Boeing, and Northrop Grumman . In 2001, the Department of Defense rejected a proposed
acquisition of Newport News by General Dynamics in the interest of competition
in the US shipbuilding and nuclear technology.[lxii] The DoD did allow Northrop Grumman to
complete its hostile takeover of Newport News so General Dynamics and Northrop
Grumman will probably never be allowed to merge. In 1998, Lockheed Martin abandoned it attempted acquisition of
Northrop Grumman after it became clear the
Department of Justice and the Pentagon would not allow it.[lxiii]
If
Lockheed Martin and Northrop Grumman had merged, the combined company would
have been the largest in the world.[lxiv]
The
attempted acquisition by Lockheed occurred before Northrop Grumman acquired
Litton Industries and Newport News so a merger between the two and this point
would surely not be allowed. Likewise,
mergers between Lockheed and Boeing or Boeing and Northrop Grumman are
similarly out of the question.
As
we have seen in the second section of the report, the effect of a possible US
arms buying freeze by other nations will have a relatively small effect,
percentage-wise, on the three companies.
The majority of their revenues come from commercial sales in the case of
Boeing, and/or the U.S. Government in the case of Lockheed and Northrop.
We have also seen that the US
military budget is the largest in the world many times over. Furthermore, there is no indication that US
military spending is on the steep downturn, even though the Cold War has been
over for a decade:
Figure taken from the CDI Almanac 2001-2002[lxv]
The
defense contractors could safely rely on the US government to support their
business if all other customers disappeared, and the US government obviously
has the ability to sustain such support.
Also, as was shown in the first section of the report, these companies
have multiple lines of business beyond merely arms production and are
well-diversified enough so that the faltering of one line of business would not
completely cripple the company.
It
is thus concluded that Lockheed, Northrop and Boeing, as we know them today as
separate companies, will be able to weather the uncertain future of the defense
industry. Their survival can be
attributed in part to diverse lines of business, in part to their market
dominance and superior capabilities, and in large part to their most loyal and
steady customer, the US government. It
is furthermore concluded that the US government would not let the $100 billion
companies employing 400,000 to fail and, given that the majority of the $100
billion comes from the government, has the power to do so.
ENDNOTES